Detailed and complicated web of deals revealed in Qantas sale

The detail of the highly innovative Qantas sale funding package that has emerged shows a very complicated web of transactions and deals offered to overseas investors that would allow Qantas to appear to remain an Australia airline, if the $11 billion sale went ahead, but also appear to be aimed at satisfying the scrutiny of the Foreign Investment Review Board.

The complicated APA documents filed with the stock exchange showed foreign banks and the overseas partners will contribute $9.7 billion, a massive majority of the loans and equity that make up the $11 billion offer.

To satisfy ownership rights though, boardroom voting rights will be split on a 60/40 basis in favour of the Australian investors, namely Allco Finance and Macquarie Bank, who are only putting $1.78 billion of their own funds into the deal.

North American investment, partners Texas Pacific Group and subsidiaries Texas Pacific Group Investors and Newbridge plus Onex Corp will invest $1.74 billion in total and they will get a mix of voting scrip and non-voting shares issued in the form of special warrants.

These non-voting warrants will cover $695.4 million of the North American investment while their voting rights will be limited to $806 million worth of $1 shares.

Canada’s Onex Corp will inject $245 million for $1 voting shares and has separately agreed to accept $200.5 million in special warrants.

Australian partners Allco Equity Partners will hold $956.1 million worth of voting shares while its parent Allco Finance Group also will get $300 million worth of voting shares.

Macquarie Bank will limit its stake to $397.4 million in voting shares to overcome competition issues that could arise because of the bank’s separate stake in Sydney’s Mascot airport.  Like the US partners, Macquarie will seek to overcome any possible conflict by taking $128.1 million in special warrants.

Yesterday’s stock exchange filing also shows that the bid partners have set aside $20 million to meet legal, accounting and travel costs as well as printing charges and these costs will not be charged to Qantas’s existing shareholders but will be billed and paid by the individual partners.

The documents also showed that the consortium risks losing this $20 million if the deal collapses, and that Qantas managers have agreed to transfer their existing entitlement to 5.38 million airline shares which gives them a 1% stake in the new business.

The pre-bid arrangement will hand the 11 named executives an immediate $30.16 million stake in the carrier and how the most senior Qantas executives, CEO Geoff Dixon and CFO Peter Gregg, have been locked into the takeover has been outlined in detail in the documents and by transferring their existing shares into APA, the executives will be entitled to shares in the new entity valued at a strike price of $5.60.

Under APA’s executive incentive plan, these same executives will be entitled to buy shares from a maximum pool of scrip valued at a maximum of $160 million at present value, which is expected to grow significantly.

The plan requires them to meet performance hurdles as yet to be revealed over a seven-year period and should the value of the stock increase, the managers will benefit from any market gains.  The documents also showed that Mr Dixon bought into the bid by transferring his entitlement of almost 1.6 million shares and share rights.

Mr Gregg assigned his entitlement to 530,500 shares under the airline’s deferred share plan, plus 280,000 share rights and 575,029 unrestricted shares gained in the course of his employment.

Not surprisingly, Qantas shares yesterday slipped 1 to $5.36.

Report by The Mole